What is a recurring journal entry?

A recurring journal entry is a journal entry that is recorded in every accounting period. For
example, a company issuing monthly financial statements might record depreciation by
debiting Depreciation Expense for $3,000 and crediting Accumulated Depreciation for $3,000
each and every month. If the accounts and the amounts are identical each month, the recurring
journal entry might be referred to as a memorized entry if the accounting software produces and
records the entry. Some accountants refer to this type of recurring journal entry as a
standard journal entry.

The term recurring journal entry can also refer to monthly journal entries where the accounts are
identical but the amounts vary by month. For example, the journal entry to record
property insurance expense might involve Insurance Expense and Prepaid Insurance every
month, but the amounts will change when the amount of the prepaid insurance premiums change.
Other recurring entries will involve the identical accounts, but the amounts will be different in
each accounting period. An example is the payroll entry. Each payroll entry will have the same
accounts but different amounts due to the number of hours worked. Other examples of recurring
entries with amounts that differ each period include sales, interest earned, interest expense, bank
service charges, and so on.

One company's recurring entry with differing amounts is generated by its software. Each month
its computer system debits Freight Expense and credits a liability Accrued Freight for the
pounds shipped multiplied by a freight cost per pound. When the freight bills are received and
paid, the liability and its cash are reduced. As long as its cost per pound is accurate, the
company's computer system is routinely achieving the matching principle and the accrual
method of accounting with little professional effort.
What does Accumulated Depreciation tell us?
Accumulated Depreciation reports the amount of depreciation that has been taken from the time
an asset was acquired until the date of the balance sheet. The cost of an asset minus its
accumulated depreciation is the asset's carry value or book value.

Since depreciation is an allocation of an asset's cost based on the estimated useful life, you
should not assume that the depreciation is an indicator of what's occurring to the asset's market
value. For example, a building in an excellent location may be increasing in value even though
depreciation is taken. The present market value might be three times the original cost and yet the
accumulated depreciation is now equal to the asset's costmeaning its book value is $0.

The amount reported in Accumulated Depreciation merely reports the total amount of an asset's
cost that has been sent over to the income statement as Depreciation Expense since the asset was
acquired.
What is a journal entry?
In manual accounting or bookkeeping systems, business transactions are first recorded in
a journal...hence the term journal entry.

A manual journal entry that is recorded in a company's general journal will consist of the following:
the appropriate date


the amount(s) and account(s) that will be debited


the amount(s) and account(s) that will be credited


a short description/memo


a reference such as a check number

These journalized amounts (which will appear in the journal in order by date) are then posted to the
accounts in the general ledger.

Today, computerized accounting systems will automatically record most of the business transactions
into the general ledger accounts immediately after the software prepares the sales invoices, issues
checks to creditors, processes receipts from customers, etc. The result is we will not see journal entries
for most of the business transactions.

However, we will need to process some journal entries in order to record transfers between bank
accounts and to record adjusting entries. For example, it is likely that at the end of each month there will
be a journal entry to record depreciation. (This will include a debit to Depreciation Expense and a credit
to Accumulated Depreciation.) In addition, there will likely be a need for journal entry to accrue
interest on a bank loan. (This will include a debit to Interest Expense and a credit to Interest Payable.)

What is depreciation expense?
Depreciation expense is the allocated portion of the cost of a company's fixed assets that is appropriate
for the accounting period indicated on the company's income statement. For instance, if a company had
paid $2,400,000 for its office building (excluding land) and the building has an estimated useful life of 40
years, each monthly income statement will report straight-line depreciation expense of $5,000 for 480
months. [However, the allocated cost of the fixed assets used in manufacturing will be part of
the manufacturing overhead which will become part of the cost of the products manufactured.]

Depreciation expense is referred to as a noncash expense because the recurring, monthly depreciation
entry (a debit to Depreciation Expense and a credit to Accumulated Depreciation) does not involve a
cash payment. As a result, the statement of cash flows prepared under the indirect method will add
depreciation expense to the amount of net income.

The common methods for computing depreciation expense include straight-line, double-declining
balance, sum-of-the-years digits, and units of production or activity.

What is prepaid insurance?
Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not
expired as of the date of the balance sheet. This unexpired cost is reported in the current asset account
Prepaid Insurance.

As the amount of prepaid insurance expires, the expired cost is moved from the asset account Prepaid
Insurance to the income statement account Insurance Expense. This is usually done at the end of
each accounting periodthrough an adjusting entry.

To illustrate prepaid insurance, let's assume that on November 20 a company pays an insurance
premium of $2,400 for the six-month period of December 1 through May 31. On November 20, the
payment is entered with a debit of $2,400 to Prepaid Insurance and a credit of $2,400 to Cash. As of
November 30 none of the $2,400 has expired and the entire $2,400 will be reported as Prepaid
Insurance. On December 31, an adjusting entry will debit Insurance Expense for $400 (the amount that
expired: 1/6 of $2,400) and will credit Prepaid Insurance for $400. This means that the debit balance in
Prepaid Insurance at December 31 will be $2,000 (5 months of insurance that has not yet expired times
$400 per month; or 5/6 of the $2,400 insurance premium cost).

What is the accrual basis of accounting?
Under the accrual basis of accounting, revenues are reported on the income statement when
they are earned. (Under the cash basis of accounting, revenues are reported on the income
statement when the cash is received.) Under the accrual basis of accounting, expenses are
matched with the related revenues and/or are reported when the expense occurs, not when the
cash is paid. The result of accrual accounting is an income statement that better measures the
profitability of a company during a specific time period.

For example, if I begin an accounting service in December and provide $10,000 of accounting
services in December, but don't receive any of the money from the clients until January, there
will be a difference in the income statements for December and January under the accrual and
cash bases of accounting. Under the accrual basis, my income statements will show $10,000 of
revenues in December and none of those services will be reported as revenues in January.
Under the cash basis, my December income statement will show no revenues. Instead, the
December services will be reported as January revenues under the cash method.

There will be a difference on the balance sheet, too. Under the accrual basis, the December
balance sheet will report accounts receivable of $10,000 and the estimated true profit will be
added to owner's equity or retained earnings. Under the cash basis, the $10,000 of accounts
receivable will not be reported as an asset, and the true profit will not be included in owner's
equity or retained earnings.

To illustrate a difference in expenses, we will assume that the heat and light expense that I used
in my accounting service is metered by the utility on the last day of the month. The utilities that
I used in December will appear on a bill that I receive in January and will pay on February 1.
Under the accrual basis of accounting, the utilities that I used in December will be estimated
and will be reported as an expense and a liability on the December financial statements. Under
the cash basis of accounting, the utilities used in December will be recorded as an expense on
February 1, when the utility bills are paid.

For financial statements prepared in accordance with generally accepted accounting principles,
the accrual method is required because of the matching principle.




Balance - you make a RJ for distributing some amount between different GL Accs or one
GL Acc, but different Dimensions (or something alike).
So, one side then is these distribution targets, the other - some account #XXXX, where you
gather together all (expenses) to distribute. When RJ is posted, Navision looks what
amount sits on that #XXXX (Balance on that account) and distributes according to what is
set up in RJ, thus setting #XXXX balance to zero.
An example for this type would be prepaid expenses asset like Insurance of assets. One
can create a RJ and distribute the prepaid expenses for the future months evenly till it
gets exhausted.
Reversing Fixed
Usually is posted on the last day of month. It makes TWO postings - one with Posting Date
as set, another on the NEXT DAY, and it reverses back the first postings.
For example, you need operational P/L statement, but you don't know your phone bill yet
- it will arrive on 10-15 day next month only, but you know it will be approx $500. So, you
make RJ with these evaluated $500, on next day it reverses back and you can wait for
actual bill with exact amount, but you have approx value to include in your operational P/L
statement.
Say your Corp has a telephone bill which would come in mail on the 15th of December.
This bill relates to November telephone expenses. You close your books on 4th Dec for
Nov. It's a accrued liability and create a journal entry as Reversing fixed with out the GST.











Recurring and Reversing Journals
Recurring Journals in Microsoft Dynamics NAV can be used for a
number of accounting functions. Each line in the journal can be
assigned a formula to determine how the system should handle the
entry.
A Recurring Journal differs from a general journal by having two additional
fields. The first additional field is where you are required to select the Recurring
method, which determines how the system should handle the transaction and the
second being the recurring frequency which determines how often this transaction
needs to be processed.
The Recurring Methods are as follows:
Fixed (F) : The journal line will be exactly the same each time it is processed. That is
each field will remain the same apart from the posting date field. This type of journal
can be used for fixed price expenses that recurr on a monthly basis.
Variable (V) : The journal line will be the same each time it is processed apart from
the amount and the date. This type of journal can be used for monthly expenses that
are recurring but the amount changes.
Balance (B) : This journal line will post out of one account or dimension value and
reallocate accross one or more accounts or dimensions by percentage or amount. This
type of journal can be used for reallocating costs accross departments on a monthly
basis.
Reversing Fixed (RF) : This is a Fixed type of journal as mentioned above but will
process the transaction and the reversal the next day. This type of journal can be
used for accruals where you want the transaction to post on the last day of the month
and reverse the first day of the following month.
Reversing Variable (RV) : This is a Variable type of journal as mentioned above but
will process the transaction and the reversal the next day. This type of journal can
be used for accruals where you want the transaction to post on the last day of the
month and reverse the first day of the following month, but where the amount
changes on a monthly basis.
Reversing Balance (RB) : This is a Balance type of journal as mentioned above but
will process the transaction and the reversal the next day. This type of journal can
be used for accruals where you want the transaction to post on the last day of the
month and reverse the first day of the following month.
The Recurring Frequency field uses a formula the needs to be entered by the user. It
can contain a maximum of 20 characters consisting of numbers and the letters that
the program recognises as abbreviations for time specifications. They can be entered
as follows:
1. If the journal line must be posted every month, enter "1M". After every posting, the date
in the Posting Date field will be updated to the same date in the next month.
2. If you want to post an entry on the last day of every month, you can do one of the
following:
3. You can post the first entry on the last day of a month and enter the formula 1D+1M-1D (1
day + 1 month - 1 day). With this formula, the program calculates the date correctly
regardless of how many days there are in the month.
4. You can post the first entry on any arbitrary day of a month and then enter the formula:
1M+CM. With this formula, the program will calculate one full month + the remaining days
of the current month.